Page 131 - CITP Review

It is likely that if a reasonably experienced CITP participates in the audit planning for assurance services,
the CITP would be able to find ways to employ CAATs as an alternative to extensive manual substantive
procedures to create audit efficiencies. Sometimes it is quicker to gather evidence using a CAAT rather
than manual procedures. If in the first year efficiencies are not obtained, in the second and following
years, the CITP might gain significant efficiencies because the efforts to develop the data extraction
process and CAAT procedures can be turned into automated processes saving time in future audits and
reviews.

An increase in audit effectiveness might also be obtained by the use of CAATs, in part because CAATs
examine 100% of the population and not a sample. Also, CAATs usage naturally leads to analysis of
transactions versus the temptation to get into rote documentation of the audit trail.

The greatest opportunity for audit effectiveness using CAATs is when high risks are present, because
CAATs can effectively perform inspection and reperformance. Combined with the100% examination, this
approach may be the most powerful of all choices. When audit risk or RMM is assessed at a very high
level, CAATs should be carefully considered.

Another key advantage is the statistical analyses that can be performed to turn an audit trail set of
procedures into more of an analysis of the transactions. CAATs provide statistical analyses that are
unavailable in manual substantive procedures and provide for improved sample selection using directed
samples combined with techniques such as stratification, identification of outliers, and so on

It is fairly common for the results of tests and procedures performed with CAATs to lead to value-added
recommendations for management of the client. It is likely that the use of CAATs will improve the
quantity and quality of those recommendations. In addition, IT recommendations seem to be more
appreciated by client and management.

Regulatory requirements also affect the need for CAATs. It is, for instance, difficult to comply with SOX
section 404 audits without the use of CAATs. Some government agencies required CAATs as part of their
request for proposals (RFPs). Some international audits also require CAATs.

CAATs may also provide the solution to solving a problem in the audit, such as assessing the extent of
bad debts or bad loans, inventory problems, assessing the performance of collecting cash, and speeding
up time prove certain calculations (for example, extending inventory value).

There are other reasons for using CAATs related to certain internal analyses needed, or external reporting
pressures.

How to effectively use CAATs
In a financial audit, a CAAT could be used to identify the most efficient and effective financial audit
procedure. When the audit objective of substantive procedures is the same as an automated process or
output of CAATs, then that procedure is a good subject for IT-related procedures using CAATs. Generally,
an experienced CITP can identify multiple opportunities for CAATs in an audit or review of a large entity
or an entity with a high level of nature and complexity of its IT.

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